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Labor market volatility in a fully specified RBC search model: An analytical investigation

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  • Tsasa, Jean-Paul K.

Abstract

I show that including a nonlinear production function with physical capital in the Diamond–Mortensen–Pissarides model lowers the elasticity of labor market tightness with respect to labor productivity by about 11.5% under the Hagedorn–Manovskii’s calibration. My finding is robust against different calibration techniques, as well as against different variants of real business cycle models with search-and-matching frictions. While the recent macroeconomics-labor literature focuses on the fundamental surplus to solve the Shimer puzzle, my analysis highlights the existence of an additional channel through which the nonlinearities implied by a production function with physical capital affect labor market volatility.

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  • Tsasa, Jean-Paul K., 2022. "Labor market volatility in a fully specified RBC search model: An analytical investigation," Journal of Mathematical Economics, Elsevier, vol. 103(C).
    • Handle: RePEc:eee:mateco:v:103:y:2022:i:c:s0304406822001021
    DOI: 10.1016/j.jmateco.2022.102776
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